Exam 12: Performance Evaluation and Decentralization

Suppose the operating asset turnover ratio increased by 35% and the margin increased by 25%.What would be the effect on the divisional ROI?

Queen Company has two divisions,the Domestic Division and the International Division.Last year,the Domestic Division earned $360,000 using average operating assets of $1,440,000.Sales for the Domestic Division were $3,600,000.Last year,the International Division earned $560,000 using average operating assets of $2,800,000.Sales for the International Division were $7,000,000. A. For the Domestic Division, the margin is _____, the turnover is _____, and the ROI is_____ B. _____For the International Division, the margin is_____ , the turnover is_____ , and the ROI is_____ C. If these are the only two divisions of Queen Company, what is the ROI for Queen Company?

Describe the four perspectives of the Balanced Scorecard.

Along which of the following lines are divisions in a decentralized company NOT created?

How is return on investment (ROI)calculated?

In calculating residual income,the minimum rate of return is set by top management and is the same as the hurdle rate used for return on investment.

Match each term with the correct statement from below. -A(n)___________ is a responsibility centre in which a manager is responsible only for sales.

The selling division would never agree to a transfer price below its full manufacturing cost.

Match each term with the correct statement from below. -A(n)___________ is a responsibility centre in which a manager is responsible only for costs.

Condor Company provided the following information for last year: Operating income \ 60,000 Sales \ 240,000 Beginning operating assets \ 440,000 Ending operating assets \ 450,000 -Refer to the Figure.What was Condor's return on investment last year?

Economic value added (EVA)can be calculated by multiplying margin by turnover.

Transfer pricing is a simple issue.

Ding Company had operating income of $140,000,sales of $437,500,and turnover of 0.5.What is Ding's ROI?

The Northern Division of Kenmost Company had income of $50,000,average assets of $350,000,and sales of $250,000.The minimum rate of return for Kenmost Company is 12%. A. What is the margin for the Northern Division? B. What is the turnover for the Northern Division? C. What is the ROI for the Northern Division? D. What is the residual income for the Northern Division?

Giga-Stuff, Inc. has a number of divisions. One division, Sophistosand, makes component X, which is used in the manufacture of DVD players. Another division, Videostuff, makes DVD players and needs 60,000 units of component X per year. Sophistosand incurs the following costs for one unit of component X: Sophistosand has the capacity to make 400,000 units of component X per year but, due to a soft market, plans to produce and sell only 320,000 units next year. Videostuff currently buys component X from an outside supplier for $2.50 each (the same price that Sophistosand receives). Direct materials \ 0.30 Direct labour 0.15 Variable overhead 0.70 Fixed overhead 1.00 Total \ 2.15 -Refer to the Figure.Assume that Sophistosand and Videostuff have agreed on a transfer price of $2.20.What is the total benefit for Sophistosand?

Xulu Company had the following income statement for last year: Beginning assets were $575,000,and ending assets were $625,000. (Carry computations out to three decimal places.) Sales \ 400,000 Less: Cost of goods sold 220,000 Gross profit \ 180,000 Less: Selling and administrative expense 80,000 Operating income \ 100,000 A. What are the average operating assets? B. What is the margin? C. What is the turnover? D. What is the ROI?

Plank Inc.has a division that makes paint and another division that constructs subdivisions.The paint division incurs the following costs for one litre of paint: The Paint Division can make 1,000,000 L per year,and expects to produce 800,000 L next year.The Construction Division currently buys 200,000 L of paint from an outside supplier for $5.30 per litre (the same price that the Paint Division receives). Direct materials \ 1.10 Direct labour 1.45 Variable overhead 0.90 Fixed overhead 1.15 Total \ 4.60 A. The maximum transfer price per litre of paint is $\$$ _____. B. The minimum transfer price per litre of $p$ aint is $\$$ _____. C. Assume that the transfer takes place at $\$ 5$ per litre; calculate the amount by which each of the following will be better off with the transfer than without it. Paint Division: $\$$ _____ Construction Division: $\$$ _____ Plank, Inc., as a whole: $_____

What is the formula for calculating economic value added (EVA)?

Giga-Stuff, Inc. has a number of divisions. One division, Sophistosand, makes component X, which is used in the manufacture of DVD players. Another division, Videostuff, makes DVD players and needs 60,000 units of component X per year. Sophistosand incurs the following costs for one unit of component X: Sophistosand has the capacity to make 400,000 units of component X per year but, due to a soft market, plans to produce and sell only 320,000 units next year. Videostuff currently buys component X from an outside supplier for $2.50 each (the same price that Sophistosand receives). Direct materials \ 0.30 Direct labour 0.15 Variable overhead 0.70 Fixed overhead 1.00 Total \ 2.15 -Refer to the Figure.Assume that Giga-Stuff allows negotiated transfer pricing.What is the ceiling of the bargaining range,and which division sets it?

In a decentralized company,overall profit margins can mask inefficiencies within the various subdivisions.